We know the basic calculations: three to six months of expenses – the standard amount – but sometimes this number gets as large as eight to twelve months of take home pay!
Sometimes people want a clearer breakdown of exactly why they need so much money just sitting there in the bank earning them an exciting $3 a year. 😐 Hello Wallet’s tool breaks your savings down into three categories:
–Minor Emergencies – minor car & home repairs and insurance deductibles
–Major Emergencies – major car & home repairs and maximum out of pocket healthcare expenses
–Job Loss – cover your expenses for a time in case you lose your job
Some people will say to just save the maximum amount possible. However, if you have a mountain of debt to pay off or a secure job or a partner who’s income you can live off of, you might want to save just the minimum until you get the rest of your finances in a more stable shape.
What IS the minimum though? Hello Wallet’s minimum will be your whatever your highest insurance deductible amount is. My minimum is half of the job loss amount, which is my largest recommended emergency savings amount. Not a small number. Much higher than the standard $1000 or $2500 dollars.
Ultimately, it’s going to be whatever you’re comfortable with. When I was paying off debt, I didn’t have health insurance at the time, so my highest deductible was $1000. For fun, I ran the calculator for that situation, and Hello Wallet’s lowest recommendation was $2300. The middle range was only $400 less than what they’re currently recommending for me, interestingly enough. And the highest amount, of course, stays the same, which is a little higher than what I have saved.
The little information box above each category says they recommend you have 12 months of expenses saved in case of a job loss. But the number they recommended for me wouldn’t cover 12 months of expenses – it would cover just under 7 months. I don’t know what’s going on with the discrepancy there – I just thought I’d point it out.
To use the savings tool, you need to know your gross and net income, your total monthly expenses amount, and what your maximum out of pocket healthcare expenses are. They also ask if you’re a single income household or not, whether you rent or own a house or condo, and what your current savings balance is so you know where you stand in their recommendation. I know what’s coming in and out a month, almost exactly, but I don’t think you need an exact number. Guesstimating is probably fine if you’re situation is more complicated and you don’t want to hunt your exact numbers down – it’s probably not going to make that much of a difference.
Final Thoughts: It’s a fun tool and doesn’t take hardly any time at all if you know your numbers, but it’s almost unnecessary. The standard starter amounts and the popular three, six, or eight month recommendations (whichever you rather choose) are more than sufficient. However, it doesn’t hurt to see what they recommend. Having a solid emergency fund is one thing financial advisers agree on and recommend consistently all across the board. It’s your buffer against disaster and debt when lightning strikes you in the butt without warning. 🙂 My only problem with Hello Wallet’s recommendations is that it’s hard to save up a lot of money quickly when you have a lot of other financial obligations to meet, especially if your minimum recommended amount is as high as mine is or higher. As with all things personal finance, your personal situation and comfort level should be the main dictator of your decisions.